Bankruptcy 101 – A Guide to Personal Bankruptcy

Brought to you by
Jon Martin, Esq.
Http://www.TheSinCityLawyer.com
 Bankruptcy laws help people who can no longer pay their creditors get a fresh start – by

liquidating assets to pay their debts or by creating a repayment plan. Bankruptcy laws also protect

troubled businesses and provide for orderly distributions to business creditors through reorganization or

liquidation.

Most cases are filed under the three main chapters of the Bankruptcy Code, Chapter 7, Chapter 13, and

Chapter 11. Bankruptcy is federal in nature. So, you cant file for bankruptcy at your local city, county,

or state court.

Introduction to the Bankruptcy Process

Article I, Section 8, of the United States Constitution authorizes Congress to enact "uniform Laws on

the subject of Bankruptcies." Under this grant of authority, Congress enacted the "Bankruptcy Code" in

1978. The Bankruptcy Code, which is codified as title 11 of the United States Code, has been amended

several times since its enactment. It is the uniform federal law that governs all bankruptcy cases.

The procedural aspects of the bankruptcy process are governed by the Federal Rules of Bankruptcy

Procedure (often called the "Bankruptcy Rules") and local rules of each bankruptcy court. The

Bankruptcy Rules contain a set of official forms for use in bankruptcy cases. The Bankruptcy Code and

Bankruptcy Rules (and local rules) set forth the formal legal procedures for dealing with the debt

problems of individuals and businesses.

There is a bankruptcy court for each judicial district in the country. Each state has one or more districts.

There are 90 bankruptcy districts across the country. The bankruptcy courts generally have their own

clerk's offices.

The court official with decision-making power over federal bankruptcy cases is the United States

bankruptcy judge, a judicial officer of the United States district court. The bankruptcy judge may

decide any matter connected with a bankruptcy case, such as eligibility to file or whether a debtor
should receive a discharge of debts. Much of the bankruptcy process is administrative, however, and is

conducted away from the courthouse. In cases under chapters 7, 12, or 13, and sometimes in chapter 11

cases, this administrative process is carried out by a trustee who is appointed to oversee the case.

A debtor's involvement with the bankruptcy judge is usually very limited. A typical chapter 7 debtor

will not appear in court and will not see the bankruptcy judge unless an objection is raised in the case.

A chapter 13 debtor may only have to appear before the bankruptcy judge at a plan confirmation

hearing. Usually, the only formal proceeding at which a debtor must appear is the meeting of creditors,

which is usually held at the offices of the U.S. trustee. This meeting is informally called a "341

meeting" because section 341 of the Bankruptcy Code requires that the debtor attend this meeting so

that creditors can question the debtor about debts and property.

A fundamental goal of the federal bankruptcy laws enacted by Congress is to give debtors a financial

"fresh start" from burdensome debts. The Supreme Court made this point about the purpose of the

bankruptcy law in a 1934 decision:

[I]t gives to the honest but unfortunate debtor…a new opportunity in life and a clear field

for future effort, unhampered by the pressure and discouragement of preexisting debt.

Local Loan Co. v. Hunt, 292 U.S. 234, 244 (1934). This goal is accomplished through the bankruptcy

discharge, which releases debtors from personal liability from specific debts and prohibits creditors

from ever taking any action against the debtor to collect those debts. This publication describes the

bankruptcy discharge in a question and answer format, discussing the timing of the discharge, the scope

of the discharge (what debts are discharged and what debts are not discharged), objections to discharge,

and revocation of the discharge. It also describes what a debtor can do if a creditor attempts to collect a

discharged debt after the bankruptcy case is concluded.

Six basic types of bankruptcy cases are provided for under the Bankruptcy Code, each of which is
discussed in this publication. The cases are traditionally given the names of the chapters that describe

them.

Types of Bankruptcies

Chapter 7- bankruptcy, or liquidation, contemplates an orderly, court-supervised procedure by

which a trustee takes over the assets of the debtor's estate, reduces them to cash, and makes

distributions to creditors, subject to the debtor's right to retain certain exempt property and the rights of

secured creditors. Because there is usually little or no nonexempt property in most chapter 7 cases,

there may not be an actual liquidation of the debtor's assets. These cases are called "no-asset cases." A

creditor holding an unsecured claim will get a distribution from the bankruptcy estate only if the case is

an asset case and the creditor files a proof of claim with the bankruptcy court. In most chapter 7 cases,

if the debtor is an individual, he or she receives a discharge that releases him or her from personal

liability for certain dischargeable debts. The debtor normally receives a discharge just a few months

after the petition is filed. Amendments to the Bankruptcy Code enacted in to the Bankruptcy Abuse

Prevention and Consumer Protection Act of 2005 require the application of a "means test" to determine

whether individual consumer debtors qualify for relief under chapter 7. If such a debtor's income is in

excess of certain thresholds, the debtor may not be eligible for chapter 7 relief.

Chapter 9- entitled Adjustment of Debts of a Municipality, provides essentially for

reorganization, much like a reorganization under chapter 11. Only a "municipality" may file under

chapter 9, which includes cities and towns, as well as villages, counties, taxing districts, municipal

utilities, and school districts.

Chapter 11, entitled Reorganization, ordinarily is used by commercial enterprises that desire to

continue operating a business and repay creditors concurrently through a court-approved plan of

reorganization.

Chapter 12-, entitled Adjustment of Debts of a Family Farmer or Fisherman with Regular
Annual Income, provides debt relief to family farmers and fishermen with regular income. The process

under chapter 12 is very similar to that of chapter 13, under which the debtor proposes a plan to repay

debts over a period of time – no more than three years unless the court approves a longer period, not

exceeding five years.

Chapter 13-, entitled Adjustment of Debts of an Individual With Regular Income, is designed

for an individual debtor who has a regular source of income. Chapter 13 is often preferable to chapter 7

because it enables the debtor to keep a valuable asset, such as a house, and because it allows the debtor

to propose a "plan" to repay creditors over time – usually three to five years. Chapter 13 is also used by

consumer debtors who do not qualify for chapter 7 relief under the means test. At a confirmation

hearing, the court either approves or disapproves the debtor's repayment plan, depending on whether it

meets the Bankruptcy Code's requirements for confirmation. Chapter 13 is very different from chapter

7 since the chapter 13 debtor usually remains in possession of the property of the estate and makes

payments to creditors, through the trustee, based on the debtor's anticipated income over the life of the

plan. Unlike chapter 7, the debtor does not receive an immediate discharge of debts. The debtor must

complete the payments required under the plan before the discharge is received. The debtor is protected

from lawsuits, garnishments, and other creditor actions while the plan is in effect. The discharge is also

somewhat broader (i.e., more debts are eliminated) under chapter 13 than the discharge under chapter 7.

Chapter 15 Bankruptcy-, entitled Ancillary and Other Cross-Border Cases, is to provide an

effective mechanism for dealing with cases of cross-border insolvency.

How Can I Get Rid of My Debts

The above information was given as an overview of the bankruptcy law. But, you want to know how

can I get a “Fresh Start.” The bankruptcy process is complex and relies on legal concepts like the

"automatic stay," "discharge," "exemptions," and "assume." Therefore, the final section of this ebook is

a glossary of Bankruptcy Terminology which explains, in layman's terms, most of the legal concepts
that apply in cases filed under the Bankruptcy Code.

What is a bankruptcy discharge?

A bankruptcy discharge releases the debtor from personal liability for certain specified types of debts.

In other words, the debtor is no longer legally required to pay any debts that are discharged. The

discharge is a permanent order prohibiting the creditors of the debtor from taking any form of

collection action on discharged debts, including legal action and communications with the debtor, such

as telephone calls, letters, and personal contacts.

Although a debtor is not personally liable for discharged debts, a valid lien (i.e., a charge upon specific

property to secure payment of a debt) that has not been avoided (i.e., made unenforceable) in the

bankruptcy case will remain after the bankruptcy case. Therefore, a secured creditor may enforce the

lien to recover the property secured by the lien.

When Can I get Rid of My Debts?

The timing of the discharge varies, depending on the chapter under which the case is filed. In a chapter

7 (liquidation) case, for example, the court usually grants the discharge promptly on expiration of the

time fixed for filing a complaint objecting to discharge and the time fixed for filing a motion to dismiss

the case for substantial abuse (60 days following the first date set for the 341 meeting). Typically, this

occurs about four months after the date the debtor files the petition with the clerk of the bankruptcy

court. In individual chapter 11 cases, and in cases under chapter 12 (adjustment of debts of a family

farmer or fisherman) and 13 (adjustment of debts of an individual with regular income), the court

generally grants the discharge as soon as practicable after the debtor completes all payments under the

plan. Since a chapter 12 or chapter 13 plan may provide for payments to be made over three to five

years, the discharge typically occurs about four years after the date of filing. The court may deny an

individual debtor's discharge in a chapter 7 or 13 case if the debtor fails to complete "an instructional

course concerning financial management." The Bankruptcy Code provides limited exceptions to the
"financial management" requirement if the U.S. trustee or bankruptcy administrator determines there

are inadequate educational programs available, or if the debtor is disabled or incapacitated or on active

military duty in a combat zone.

How Can I get Rid of All of My Debts?

Unless there is litigation involving objections to the discharge, the debtor will usually

automatically receive a discharge. The Federal Rules of Bankruptcy Procedure provide for the clerk of

the bankruptcy court to mail a copy of the order of discharge to all creditors, the U.S. trustee, the

trustee in the case, and the trustee's attorney, if any. The debtor and the debtor's attorney also receive

copies of the discharge order. The notice, which is simply a copy of the final order of discharge, is not

specific as to those debts determined by the court to be non-dischargeable, i.e., not covered by the

discharge. The notice informs creditors generally that the debts owed to them have been discharged and

that they should not attempt any further collection. They are cautioned in the notice that continuing

collection efforts could subject them to punishment for contempt. Any inadvertent failure on the part of

the clerk to send the debtor or any creditor a copy of the discharge order promptly within the time

required by the rules does not affect the validity of the order granting the discharge.

Can I Get all of My Debts Discharged?

Not all debts an be discharged. The debts discharged vary under each chapter of the Bankruptcy Code.

Section 523(a) of the Code specifically excepts various categories of debts from the discharge granted

to individual debtors. Therefore, the debtor must still repay those debts after bankruptcy. Congress has

determined that these types of debts are not dischargeable for public policy reasons (based either on the

nature of the debt or the fact that the debts were incurred due to improper behavior of the debtor, such

as the debtor's drunken driving).

There are 19 categories of debt excepted from discharge under chapters 7, 11, and 12. A more limited
list of exceptions applies to cases under chapter 13.

Generally speaking, the exceptions to discharge apply automatically if the language prescribed by

section 523(a) applies. The most common types of nondischargeable debts are certain types of tax

claims, debts not set forth by the debtor on the lists and schedules the debtor must file with the court,

debts for spousal or child support or alimony, debts for willful and malicious injuries to person or

property, debts to governmental units for fines and penalties, debts for most government funded or

guaranteed educational loans or benefit overpayments, debts for personal injury caused by the debtor's

operation of a motor vehicle while intoxicated, debts owed to certain tax-advantaged retirement plans,

and debts for certain condominium or cooperative housing fees.

The types of debts described in sections 523(a)(2), (4), and (6) (obligations affected by fraud or

maliciousness) are not automatically excepted from discharge. Creditors must ask the court to

determine that these debts are excepted from discharge. In the absence of an affirmative request by the

creditor and the granting of the request by the court, the types of debts set out in sections 523(a)(2), (4),

and (6) will be discharged.

A slightly broader discharge of debts is available to a debtor in a chapter 13 case than in a chapter 7

case. Debts dischargeable in a chapter 13, but not in chapter 7, include debts for willful and malicious

injury to property, debts incurred to pay non-dischargeable tax obligations, and debts arising from

property settlements in divorce or separation proceedings. Although a chapter 13 debtor generally

receives a discharge only after completing all payments required by the court-approved (i.e.,

"confirmed") repayment plan, there are some limited circumstances under which the debtor may

request the court to grant a "hardship discharge" even though the debtor has failed to complete plan

payments. Such a discharge is available only to a debtor whose failure to complete plan payments is

due to circumstances beyond the debtor's control. The scope of a chapter 13 "hardship discharge" is

similar to that in a chapter 7 case with regard to the types of debts that are excepted from the discharge.
A hardship discharge also is available in chapter 12 if the failure to complete plan payments is due to

"circumstances for which the debtor should not justly be held accountable."

Can the Creditors Fight the Discharge of My Debts?

In chapter 7 cases, the debtor does not have an absolute right to a discharge. An objection to the

debtor's discharge may be filed by a creditor, by the trustee in the case, or by the U.S. trustee. Creditors

receive a notice shortly after the case is filed that sets forth much important information, including the

deadline for objecting to the discharge. To object to the debtor's discharge, a creditor must file a

complaint in the bankruptcy court before the deadline set out in the notice. Filing a complaint starts a

lawsuit referred to in bankruptcy as an "adversary proceeding."

The court may deny a chapter 7 discharge for any of the reasons described in section 727(a) of the

Bankruptcy Code, including failure to provide requested tax documents; failure to complete a course on

personal financial management; transfer or concealment of property with intent to hinder, delay, or

defraud creditors; destruction or concealment of books or records; perjury and other fraudulent acts;

failure to account for the loss of assets; violation of a court order or an earlier discharge in an earlier

case commenced within certain time frames (discussed below) before the date the petition was filed. If

the issue of the debtor's right to a discharge goes to trial, the objecting party has the burden of proving

all the facts essential to the objection.

In chapter 12 and chapter 13 cases, the debtor is usually entitled to a discharge upon completion of all

payments under the plan. As in chapter 7, however, discharge may not occur in chapter 13 if the debtor

fails to complete a required course on personal financial management. A debtor is also ineligible for a

discharge in chapter 13 if he or she received a prior discharge in another case commenced within time

frames discussed the next paragraph. Unlike chapter 7, creditors do not have standing to object to the

discharge of a chapter 12 or chapter 13 debtor. Creditors can object to confirmation of the repayment

plan, but cannot object to the discharge if the debtor has completed making plan payments.
 How many years does it have to be before I can file for another chapter 7 bankruptcy?

The court will deny a discharge in a later chapter 7 case if the debtor received a discharge under chapter

7 or chapter 11 in a case filed within eight years before the second petition is filed. The court will also

deny a chapter 7 discharge if the debtor previously received a discharge in a chapter 12 or chapter 13

case filed within six years before the date of the filing of the second case unless (1) the debtor paid all

"allowed unsecured" claims in the earlier case in full, or (2) the debtor made payments under the plan

in the earlier case totaling at least 70 percent of the allowed unsecured claims and the debtor's plan was

proposed in good faith and the payments represented the debtor's best effort. A debtor is ineligible for

discharge under chapter 13 if he or she received a prior discharge in a chapter 7, 11, or 12 case filed

four years before the current case or in a chapter 13 case filed two years before the current case.

Can the Discharge, at a Later Date be Revoked?

The court may revoke a discharge under certain circumstances. For example, a trustee, creditor, or the

U.S. trustee may request that the court revoke the debtor's discharge in a chapter 7 case based on

allegations that the debtor: obtained the discharge fraudulently; failed to disclose the fact that he or she

acquired or became entitled to acquire property that would constitute property of the bankruptcy estate;

committed one of several acts of impropriety described in section 727(a)(6) of the Bankruptcy Code; or

failed to explain any misstatements discovered in an audit of the case or fails to provide documents or

information requested in an audit of the case. Typically, a request to revoke the debtor's discharge must

be filed within one year of the discharge or, in some cases, before the date that the case is closed. The

court will decide whether such allegations are true and, if so, whether to revoke the discharge.

In chapter 11, 12, and 13 cases, if confirmation of a plan or the discharge is obtained through fraud, the

court can revoke the order of confirmation or discharge.

A debtor who has received a discharge may voluntarily repay any discharged debt. A debtor may repay

a discharged debt even though it can no longer be legally enforced. Sometimes a debtor agrees to repay
a debt because it is owed to a family member or because it represents an obligation to an individual for

whom the debtor's reputation is important, such as a family doctor.

What can the debtor do if a creditor attempts to collect a discharged debt after the case is concluded?

If a creditor attempts collection efforts on a discharged debt, the debtor can file a motion with the court,

reporting the action and asking that the case be reopened to address the matter. The bankruptcy court

will often do so to ensure that the discharge is not violated. The discharge constitutes a permanent

statutory injunction prohibiting creditors from taking any action, including the filing of a lawsuit,

designed to collect a discharged debt. A creditor can be sanctioned by the court for violating the

discharge injunction. The normal sanction for violating the discharge injunction is civil contempt,

which is often punishable by a fine.

This Ebook is Presented To You Courtesy of:

Jon Martin, Esq.
500 N. Las Vegas, Blvd. Suite 300
Las Vegas, NV 89107
1-(877)-778-0878

Http://www.thesincitylawyer.com